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Bitcoin’s meteoric rise has left both enthusiasts and sceptics astounded. This article will attempt to dissect the underlying factors driving its surge in value. From increasing institutional adoption to regulatory developments and macroeconomic trends, we explore the landscape shaping Bitcoin’s ascent from a fringe curiosity to a mainstream asset.

The Appreciation of Bitcoin’s Value

Bitcoin’s journey from an obscure digital experiment to a widely recognised and valued asset can be traced through several key phases:

2009 – 2013: Experimental Beginnings

Bitcoin was released in 2009 by an anonymous developer, or group of developers, known as Satoshi Nakamoto. Bitcoin was primarily traded among tech enthusiasts and cryptography experts in its early years. The lack of widespread understanding and adoption kept its value relatively low, with early transactions often involving trivial amounts for experimental purposes.

2013 – 2017: Mainstream Attention and Futures Trading

Between 2013 and 2017, Bitcoin began to gain significant public attention. Its decentralised nature and potential as a hedge against traditional financial systems attracted a broader audience. This period saw the introduction of Bitcoin futures trading on the Chicago Board Options Exchange (CBOE) in 2017, marking a pivotal moment in its journey towards mainstream financial markets. Futures trading allowed investors to speculate on Bitcoin’s future price, further legitimising its presence in the investment world.

2018 – 2020: Regulatory Challenges and Market Recovery

Bitcoin faced substantial regulatory challenges between 2018 and 2020, most notably from China, which imposed bans on the use of cryptocurrencies as units of exchange. This led to a sharp decline in Bitcoin’s value. However, despite these challenges, Bitcoin demonstrated resilience. Market dynamics adjusted to the new regulations, and Bitcoin’s value recovered, driven by continued interest from global investors and its growing perception as digital gold.

2021 – 2023: Impact of Regulations and Other Economic Factors

New regulatory developments and various macroeconomic factors, including rising interest rates and liquidity concerns, marked 2021 to 2023. These influences created volatility in Bitcoin’s value, however, it also underscored its role as a hedge against traditional economic uncertainties. Bitcoin’s decentralised and deflationary attributes continued to attract investors seeking alternatives to fiat currencies and conventional financial instruments.

Bitcoin as a Store of Value

Bitcoin is often touted as a store of value due to its alignment with the fundamental characteristics of money. Bitcoin possesses attributes that qualify it as a robust store of value:

Durability – Bitcoin, as a digital asset, does not degrade over time, ensuring its longevity as a store of value.

Portability –  Bitcoin can be easily transferred globally, making it highly portable compared to physical currencies or commodities.

Divisibility Bitcoin can be divided into smaller units, facilitating transactions of varying sizes and enhancing its usability.

Uniformity – Each Bitcoin is identical to any other Bitcoin, ensuring consistency in value and acceptance.

Limited Supply Bitcoin’s supply is capped at 21 million coins, creating scarcity and protecting against inflationary pressures.

Acceptability Bitcoin is increasingly accepted by merchants, financial institutions, and investors worldwide, enhancing its utility and integration into the global economy.

Special Factors Influencing Bitcoin in 2024

Several significant factors are poised to influence Bitcoin’s trajectory in 2024, shaping its market dynamics and investment appeal.

Blackrock Spot ETF and US Financial Regulation

The Blackrock Spot ETF marks a critical development in Bitcoin’s institutional adoption. Exchange-traded funds (ETFs) are investment funds that hold a collection of assets and are traded on stock exchanges. A Spot ETF, in particular, reflects the up-to-date value of the underlying assets, in this case, Bitcoin, as opposed to Futures ETFs, which are based on speculative future values.

BlackRock’s spot Bitcoin ETF, or IBIT, entered the market in January 2024. Within just five days, it held over $1 billion in Bitcoin. While Grayscale Bitcoin Trust remains the largest spot Bitcoin ETF by market share, BlackRock’s entrance into the space is significant due to its stature as the world’s largest asset manager, overseeing $10 trillion in assets. This move by BlackRock underscores a growing acceptance of Bitcoin as a viable asset class, providing retail and institutional investors with direct exposure to Bitcoin’s real-time value.

Importance 

Launching a spot ETF by such a prominent institution signals a maturation of the cryptocurrency market and enhances Bitcoin’s credibility. It provides a straightforward way for investors to gain exposure to Bitcoin without directly holding or managing the digital asset.

Ramifications 

Increased liquidity, accessibility for a broader range of investors, and potentially greater regulatory scrutiny and stabilization of Bitcoin’s market.

Possible Outcomes

 Enhanced investor confidence in Bitcoin, increased adoption among traditional financial institutions, and potentially greater price stability.

Bitcoin Halving

Bitcoin’s halving event, which occurs approximately every four years, plays a crucial role in controlling the cryptocurrency’s supply. During a halving, the reward for mining new Bitcoin blocks is reduced by half. This mechanism limits the creation of new Bitcoin, ultimately capping the total supply at 21 million coins. In mid-April 2024, the halving event reduced the block reward from 6.25 to 3.125 Bitcoins.

Importance 

Halving events are significant because they decrease the rate at which new Bitcoin enters circulation, effectively reducing supply while demand remains constant or increases.

Ramifications 

Historical patterns suggest that Bitcoin’s value rises following a halving event due to the scarcity effect. This can attract increased interest from investors and speculators anticipating a price surge.

Possible Outcomes 

A potential increase in Bitcoin’s price as the reduced supply meets steady or growing demand, heightened media and investor attention, and intensified mining competition.

Inflation Concerns

Inflation is a critical economic factor influencing investment decisions. Projections indicate a potential increase in consumer prices by about 25% over the next six years. Persistent quantitative easing, which involves central banks pumping more cash into the economy, has raised concerns about inflation and the erosion of purchasing power, particularly for fiat currencies like the US dollar.

Importance 

Bitcoin is often seen as a hedge against inflation due to its fixed supply and decentralised nature. As inflation erodes the value of fiat currencies, Bitcoin’s deflationary characteristics make it an attractive alternative for preserving value.

Ramifications 

Increased demand for Bitcoin as a store of value and inflation hedge, potential shifts in investor behaviour towards cryptocurrencies, and broader acceptance of Bitcoin as a legitimate asset in diversified portfolios.

Possible Outcomes

Increasing adoption of Bitcoin as a hedge against inflation, potential appreciation in Bitcoin’s value, and increased interest from retail and institutional investors.

Cryptocurrencies for Transactions

Using cryptocurrencies, including Bitcoin, for transactions on social media and other online platforms is becoming more prevalent. Notably, there have been discussions about integrating cryptocurrency payments on the X platform, with speculation about using Dogecoin for transactions.

Importance 

Integrating cryptocurrencies into mainstream platforms enhances their utility as mediums of exchange, promoting wider adoption and usage beyond speculative investments.

Ramifications 

Increased transactional use of cryptocurrencies, greater familiarity and acceptance among the general public, and advances in regulatory oversight and user experience.

Possible Outcomes 

Expanded use of Bitcoin and other cryptocurrencies for everyday transactions, greater integration into digital economies, and enhanced visibility and legitimacy of cryptocurrencies as functional currencies.

Conclusion

Bitcoin’s value in 2024 is influenced by a confluence of factors including the introduction of Blackrock’s Spot ETF, the scheduled halving event, inflation concerns, and the growing use of cryptocurrencies for transactions. Each factor plays a significant role in shaping Bitcoin’s market dynamics and potential future growth. As Bitcoin continues to evolve from a speculative asset to a mainstream financial instrument, its resilience and adaptability in the face of regulatory, economic, and technological changes underscore its potential for continued prominence in the global financial landscape.

Bitcoin’s trajectory in 2024 and beyond remains promising, with institutional adoption, supply constraints, inflationary pressures, and increased transactional use driving its potential growth. While uncertainties persist, Bitcoin’s fundamental attributes position it for sustained relevance and potential appreciation in the evolving financial ecosystem.